Order types, the spread & slippage
The execution basics that silently decide whether a good idea makes money.
The three orders that matter
- Market order — fill now, at whatever the book offers. You pay the spread and, in thin or fast markets, slippage beyond it. Use when getting in/out matters more than the price.
- Limit order — fill at your price or better, or not at all. You control cost but risk missing the move. The default for entries you planned in advance.
- Stop order — becomes a market order when price touches the trigger. This is your get-me-out — and, on the other side of the tape, the fuel behind stop runs.
The spread is a cost you pay every trade
The bid-ask spread is the toll booth. A liquid index product may cost a cent; a thin option or small-cap can cost percent-level money each way. Frequent trading in wide-spread instruments loses even with good ideas — the toll eats the edge. Check the spread before sizing the trade, and prefer liquid underlyings while learning.
Where market orders hurt most
At the open, around news, and in options with thin quotes, the book is sparse and fast. A market order there can fill startlingly far from the last print. If you must trade those moments, use limits — a missed fill is cheaper than a terrible one.